Adeia (ADEA) Q2 2026 earnings call transcript

Good afternoon, everyone. Thank you for joining us as we share with you details of our quarterly financial results. With me on the call today are Paul Davis, our president and CEO, and Keith Jones, our CFO.

Paul will share with you some general observations regarding the quarter, and then Keith will give further details on our financial results and guidance. We will then conclude with a question and answer period.

In addition to today's earnings release, there is an earnings presentation which you can access along with the webcast in the IR portion of our website.

Before turning the call over to Paul, I would like to provide a few reminders. First, today's discussion contains forward-looking statements that are predictions, projections, or other statements about future events which are based on management's current expectations and beliefs, and therefore subject to risks, uncertainties, and changes and circumstances. For more information on the risks and uncertainties that could cause our actual result to differ materially from what we discussed today, please refer to the risk factors section in our SEC filings, including our annual report on Form 10K and our quarterly report on Form 10Q.

Please note that the company does not intend to update or alter these forward-looking statements to reflect events or circumstances arising after this call.

To enhance investors' understanding of our ongoing economic performance, we will discuss non-GAP information during this call. We use non-GAP financial measures internally to evaluate and manage our operations. We have therefore chosen to provide this information to enable you to perform comparisons of our operating results as we do internally.

We have provided reconciliations of these non-GAP measures to the most directly comparable GAP measures in the earnings release, the earnings presentation, and on the investor relations section of our website. A recording of this conference call will be made available on the investor relations website at audia. com. Now, I'd like to turn the call over to our CEO, Paul Davis.

Thank you, Chris, and thank you everyone for joining us today. I'm pleased to share our results for the second quarter of 2026 and our strong performance in the first half of the year. Our second quarter results were in line with our expectations as we delivered revenue of $96 million with an adjusted EBITDA margin of 59%.

We had another excellent quarter of cash generation, producing $55 million in cash from operations. We ended the quarter with $137 million in cash while executing on all four pillars of our capital allocation strategy.

We closed six license agreements during the quarter and added a record 12 new customers in total. Our first half performance included solid execution across all aspects of our business, closing license agreements with Microsoft, AMD, Google, and our recent deal with RPX that further accelerates our e-commerce business.

We also continue to invest in growing our leading media and semiconductor portfolios and believe we are well positioned for the long term. The progress we've made to date is in line with our expectations. So we are reiterating our 2026 revenue guidance of $395 to $435 million.

Our non-PATV recurring revenue is strong and thriving, growing 54% year over year in the second quarter and is now nearly double the size of our PATV recurring revenue.

Despite the known headwinds in PATV, including recent litigation matters, our pipeline is robust and we are confident in our long term trajectory.

The timing of resolution to any litigation, however, is difficult to predict and thus could impact us in the short term.

As we look at the remainder of the year, our diversified and growing pipeline continues to provide multiple paths to achieve our revenue goals for 2026.

As we have stated before, we tend to do big deals. And operationally, we lean towards being a relatively small volume, high dollar shop. As always, we will remain disciplined in closing deals that are in the best long term interest of the company and its stakeholders.

Our range of outcomes for the year reflects this approach and will be impacted by the ultimate timing of when we sign license agreements, which we continue to have the utmost confidence in being able to do.

Importantly, as we have seen in the past, to the extent any opportunities move out of 2026, they provide a springboard for us in the following year. One of our most significant license agreements in the second quarter was a multi-year renewal with Google for access to our media portfolio.

Google has been a valued customer for approximately 15 years and this renewal reflects the continued relevance and strength of our media portfolio for pay TV. YouTube TV, which is operated by Google, has become one of the most important players in the pay TV market with subscriber growth that has dramatically outpaced many of its peers. Its scale and trajectory are a clear demonstration of the ongoing migration from traditional pay TV to virtual MVPD services.

And our portfolio is well positioned to capture that shift. With the renewal of Google combined with our Disney agreement signed last year, which includes Hulu plus live TV, we now count two of the largest and fastest growing virtual MVPD platforms in the country as our customers.

Also in the second quarter, we made excellent progress in e-commerce, closing a seminal multi-year license agreement with RPX, a leading patent risk solutions company. This unique deal includes 10 participating member companies in a single agreement, giving them a term license to our growing media portfolio of approximately 10,900 patent assets. This deal was driven by our e-commerce technologies, including intelligent search, virtual shopping experiences, and consumer engagement across connected platforms.

The RPX members include a broad consortium of market leaders across the digital commerce ecosystem, spanning apparel, beauty, online marketplaces, delivery networks, and enterprise technology platforms.

With the progress we've made in the past two years, we believe this business can grow over the long term to a size similar to our consumer electronics business, which has been approximately 10% of our total revenue.

Other deals signed in the second quarter include a new multi-year license agreement with L'Oreal, a leading cosmetics and personal care company, a new multi-year license agreement with a leading provider of streaming documentary programming, and renewals with a leading European pay TV provider and a consumer electronics manufacturer in Japan.

Renewals are a cornerstone of our business model. With our renewal rate at over 90%, the vast majority of our customers renew with us because we continue to innovate and build positive relationships with them.

I am pleased to announce that given the optimism in the trajectory of our business, and particularly the semiconductor market, we are raising our long-term revenue target to $600 million from $500 million annually.

Let me begin briefly with media and then provide more color on semiconductors. Our growth objective for our media business over the long term remains unchanged at $400 million annually.

Bostered by our success and growing market adoption of our technology, we see key verticals such as OTT, e-commerce, consumer electronics, and social media as catalysts for growth.

Moving to the semiconductor industry, we continue to see rapid evolution in the market and the increasing demands from AI have induced an unprecedented acceleration in the development and production of highly advanced logic and memory devices.

This new super cycle is driving the semiconductor market to reach over $1.5 trillion this year. Hybrid bonding has become a critical enabler of next generation chip architectures, helping to solve density, performance, and thermal management challenges.

We are very excited about the opportunities that lie ahead for our semiconductor business given these industry dynamics and increasing need for our technologies.

We had previously estimated this opportunity to be $100 million annually. Driven by the broader and faster adoption of hybrid bonding, we now expect our long-term semiconductor opportunity to reach $200 million annually.

Custom and general purpose logic providers are already or will soon be incorporating hybrid bonding in both enterprise and consumer-related products.

Apple, Intel, and Broadcom all have products ramping into production using hybrid bonding, further building on the momentum from our recent license agreement with AMD.

And according to industry reports, NVIDIA's Famen will also incorporate hybrid bonding beginning in 2028. High bandwidth memory and flash for both enterprise and consumer markets are also incorporating hybrid bonding.

We believe hybrid bonding will be a requirement in HBM with 20 or more layers, if not sooner. 3D nan leaders, Sandisk and Kyoksha, both customers of ours, began using hybrid bonding for NAND in 2023. And we believe others will follow as layer counts approach 400.

We know broad adoption of hybrid bonding is coming, because the capital equipment required is being ordered. To meet demand for these next generation devices, leading foundries, memory companies, and OSATs are planning to spend approximately $125 billion in the near term for advanced packaging, including hybrid bonding.

Our investments in semiconductor innovations are coming to fruition, and the opportunities in front of us are very exciting. Let me now turn to our efforts to further diversify and grow our recurring revenue.

As noted earlier, our non-PATV recurring revenue grew an impressive 54% year over year in the second quarter, continuing a multi-quarter trend.

I could not be more pleased with this progress. And it is a result of our execution and focus since our separation from Experi almost four years ago.

We knew PATV would remain a core part of our business, and we have continued to invest in it. But we also knew, given the secular trends of that industry, we needed to find other avenues of growth.

Our teams across R&D, sales, and patent portfolio development have executed extremely well to this vision, maintaining our relevance and strength in PATV, while at the same time impressively growing our business well beyond it.

Our IP portfolios are at the foundation of everything we do, and we continue to invest in them strategically. In the second quarter, we completed six Tuck-in IP portfolio acquisitions for $9.5 million. Focus primarily on e-commerce, OTT, and imaging.

Our portfolio grew to over 14,250 patent assets in the second quarter, up approximately 4% from the first quarter. In total, we have grown our patent portfolios by almost 5,000 patent assets since separation. The vast majority of this growth generated organically.

Consistent with our commitment to defending our IP, earlier this quarter, we filed patent infringement claims against FUBO, asserting four patents from our media portfolio.

We are disappointed we could not reach acceptable terms for a new license agreement. Our goal, as always, is a business resolution, a license agreement that reflects the underlying value of our IP. I want to be clear that this matter is completely separate from our license agreement with Disney. FUBO represents a distinct opportunity, and the litigation has no impact on our license agreement with Disney.

I also want to provide a brief update on the CEO search we announced in connection with our first quarter results.

The board's search process is going well. We have engaged a nationally recognized search firm, and the board is actively evaluating candidates. As a reminder, we anticipate announcing a successor by the fourth quarter of this year.

In the meantime, I want to reassure our stakeholders that is business as usual at Audia, the same strategy, same team, and same goals. Our team remains energized and focused on executing our business plan and our pipeline remains strong.

I remain fully committed to driving the business toward our goals for 2026, and to position the company for continued long-term success. I am proud of what we have built together, and I remain excited about what lies ahead.

Our execution in the second quarter was great across the board, and our revenue was in line with expectations. As we look to the second half of the year, our pipeline remains strong across both media and semiconductors, and we are committed to achieving our full year objectives.

Our team is building something special at Audia, and with the tremendous progress we've made, I am confident in our trajectory towards our newly revised, long-term, $600 million annual goal for revenue.

With that, I will turn the call over to Keith.

Thank you, Paul. I'm pleased to be speaking with you today to share details of our second quarter 2026 financial results. During the second quarter, we delivered results that were in line with our expectations. Revenue of $96.1 million was driven by the execution of six license agreements across a diverse mix of customers, including OTT, e-commerce, consumer electronics, and pay TV.

Our second quarter was highlighted by our renewal with Google, and a new license agreement with RPS. In all, we added a record of 12 new customers in the quarter.

Now, I would like to discuss our operating expenses, for which I'll be referring to non-GAP numbers only. During the second quarter, operating expenses were $40.2 million, a decrease of $2.7 million, or 6% from the prior quarter. The decrease was primarily due to lower litigation and personal related costs.

Research and develop expenses were essentially flat compared to the prior quarter. Selling general administrative expenses decreased $2 million, or 10% from the prior quarter, primary due to lower personal related expenses.

Litigation expense was $5.3 million, a decrease of $639,000, or 11% compared to the prior quarter, primarily driven by lower spending on AMD, due to the resolution of litigation in the prior quarter, which was partially offset by new litigation matters.

Interest expense during the second quarter was $8 million, a decrease of $511,000, primarily due to our debt repayments and due to lower variable interest rates during the period. Our current effective interest rate, which includes amortization of debt issuance costs, was 7.1%. Other income was $1.7 million, and was primary related to interest earned on our cash and investment portfolio, and due to interest income recognized on revenue agreements with long-term billing structures under ASC 606.

Our adjusted EBITDA for the second quarter was $56.4 million. Reflecting adjusted EBITDA margin of 59%. Depreciate expense for the second quarter was $480,000.

Our non-gap income tax rate was 21% for the quarter. Our income tax expense consists primary of federal and state domestic taxes, as well as Korean withholding taxes.

Now for a few details on the balance sheet. We ended the second quarter with $137.1 million in cash, cash equivalents, and marketable securities.

And we generated $54.6 million in cash from operations. We made $6.1 million in principal payments on our debt in the second quarter, and ended the quarter with a term loan balance of $392.6 million.

We repurchase approximately 353,000 shares of our common stock for $10 million, bringing the remaining amount available for future repurchases to $140 million under our current stock repurchase program.

Our strong financial performance in the second quarter, once again allowed us to execute on all four pillars of our balanced capital allocation approach. This includes paying down our debt, repurchasing shares, paying our dividend, and making tuck-in portfolio acquisitions.

We paid a cash dividend of $0.5 per share of common stock. Our board also approved payment of another $0.5 per share dividend to be paid on September 14th to shareholders of record as of August 24th.

For 2026, we are reiterating our prior revenue guidance range of $3.95 to $435 million. Our pipeline remains strong and reflects the widespread adoption of our technologies across both the media and semiconductor markets.

Operating expenses are expected to be in the range of $184 to $192 million. We expect interest expense to be in the range of $34 to $36 million.

We expect other income to be in the range of $5.5 to $6.5 million. We expect a resulting adjusted EBITDA margin of approximately 55%. We expect the non-gapped tax rate to be 21% for the full year. We also expect capital expenditures to be approximately $2 million for the full year.

I am truly excited about our future. The increase in our long-term revenue outlook to $600 million annually is a clear reflection of this enthusiasm.

We find ourselves at the right place, at the right time, with the right assets. And our entire team remains dedicated to executing on this goal.

That brings it into our prepared remarks. And with that, I'd like to turn the call over to the operator to begin our question and answer session. Operator?

Hey, Scott, great to hear from you. So just to kind of start off with that breakout between media and semiconductor.

Semi was about $14.8 million in revenue for Q2. And if you look on a year-to-date basis, I'm just pleased to say that semi-year-to-date is about $48 million off of that $200 million number that we posted, so about 24%. So just really good growth. If you compare that to what we were in a full year last year, about $26 million, you can clearly see our semi-businesses headed in a great direction.

Yeah, Scott, and then on the pipeline, you got it right. I mean, it's really across the board that we're seeing a hybrid bonding adoption. I noted some of it on my call with logic players, really beyond AMD. AMD was the head of the curve. As we mentioned before, they started shipping hybrid bonded logic devices in 2022. But now we're seeing it with Broadcom and Intel is ramping. Even Apple has chips in production as well.

And then there's industry reports that Nvidia's fame in in 2028 will incorporate hybrid bonding. So we're very excited about that opportunity. And then you mentioned hyperscalers as well. I've said this publicly a number of times that these hyperscalers are semiconductor companies now. And I believe that. They're all focused on differentiating their own products and services with their semiconductor chips.

And that's going to create additional opportunity for us. And then lastly, what we're seeing in the NAN market and HBM, the proof is really in what we're seeing in the CapEx build out. I mentioned $125 billion CapEx build out for advanced packaging, including hybrid bonding. But also there's reports that Samsung has ordered 50 bonding tools. And so all of this just lines up with what we have been anticipating, which is tremendous adoption of hybrid bonding, which is giving us that confidence in formally increasing our target to 200 million annually for the semiconductor business, which we are very excited about.

Great, that's very helpful. It may be shifting gears into the media-sided equation. We've gone through a transition here with direct TV and dish, kind of coming out of the numbers. But now it seems like you've got a broadened opportunity pipeline that's more diverse across different customers, different categories. And so I guess the question is, given what you're seeing in the non-paid TV revenue and growth, do we expect to see recurring revenue within media now on a growth trajectory that we've kind of absorbed the hits on direct TV and dish?

Yeah, I think we are really proud of our non-paid TV, recurring revenue growth. This is something that we were very strategic about since our separation. We knew, like everybody else knew, where the pay TV industry was going.

We have had some more headwinds because of some of this litigation that we might have not anticipated a few years ago, but this is the diversification play coming into fruition. And you're seeing that really across the board. I think the highlights I would say is obviously OTT. And then e-commerce are our big contributors to that growth. But even consumer electronics and social media are contributing as well to that growth. And then we have plans to continue to expand into different adjacent markets on the media side as well.

And those are starting to ramp in addition to what we already have contributing with e-commerce. So we're really pleased across the board on that. And I do think we're in a continued growth phase. We've had continued consistent growth since our separation from Expiry, where we have built on our non-pay TV recurring revenue, really quarter over quarter. There's occasionally dips just because of deal timing where you'll see that and structure of deals. And then it will ramp back up. But if you look at just a line across the board over the last four years, it is up until the right. And we expect that to continue.

Yeah, that's right, Kevin. I think we talk about, we call it long term, I think broadly speaking, we think about that in about five years, right? Is what we think about when we do our long range planning and we think that that is achievable, right? In that time frame now on for that $200 million semiconductor target, you know? Again, it's really the catalyst that I just mentioned to Scott, you know, it's both logic and memory. And by memory, I really do mean NAND and HBM. It's not just HBM, which we continue to be very bullish on as we get to, you know, 20 layers or so.

But NAND, as we get to 400 layers, there's a real need, right, for hybrid bonding for the big three memory guys. And we think they're all ramping to get there. And so it's on both sides of their memory businesses and that's what excites us as well, in addition to all the cop acts build out that we're seeing.

You know, when we think about rapid cool, yeah, we think it is a part of this catalyst as well. You know, again, we license on a portfolio-wide basis, right? But one of the things that differentiates us from other licensing companies is really the innovation story. And rapid cool is a great thing for us to showcase, right, on that innovation. It's new, it's solving a big problem that the industry is trying to deal with right now.

Thermal management, as you know, Kevin, is at the heart of a lot of what these companies are worried about. And we're showing a solution that can be adopted, right? That is not, you know, so wild that it creates some, you know, totally new ecosystem. It's, as I've mentioned before, it's plug and play in these current data centers, right? And it uses existing equipment.

And so, yeah, we think it can be also, you know, a really important element to our re-licensing efforts with the memory players, but also in logic, as we've talked about before. And so, yeah, it's part of that story. You know, hybrid bonding is kind of now, so we focus on that. But rapid cool is definitely an element of that re-licensing effort as well, as we, you know, talk to customers about how our portfolio continues to grow and evolve.

What IP was that semiconductors or media and did they include any employees or was it just packs? Yeah, so, you know, as I think we've mentioned before, we're focused on our tuck-in acquisitions really being in all of our growth areas. And so, this quarter, it was media-focused, so e-commerce, OTT and imaging, whereas the primary technology areas that we acquired in. But we are evaluating, you know, semiconductive portfolios as an addition to other media growth areas as well. You know, we've got a strong pipeline in our acquisitions.

These particular ones were patent-focused, but we do remain open to, you know, looking at, you know, inventive teams and doing, you know, aqua hires as well as patent acquisitions. That's part of what we evaluate as well.

Good to speak with you. You know, I think our pipeline is quite robust. You know, I was mentioning to someone just recently, you know, I feel really good about where we are and if I think about even comparing it into years past, you know, I think we've got an incredibly robust set of opportunities to deliver on our commitments for this year. And it can come from various different avenues, right? And I think the momentum we are seeing in e-commerce on the heels of our RPX deal is tremendous, for example.

But in addition, obviously, the OTT in semiconductor momentum continues on as well. And so, when I look forward, you know, there are a number of ways for us to get there, and they include, you know, even potentially, you know, some of the pay TV items that we've got, you know, in dispute, which obviously can move the needle quite a bit. But as you know, we are a small-volume high-dollar shop, right? And so the good news is this year, we've got more in our past to get there than we have in the past, as I mentioned last quarter, and that continues on.

Sure, you know, I think we've got, you know, a number of ways to get within our range. If I look at last year, for example, right, we were at, you know, about 170 at this point. We had two-quarters of 85, right? This year, we're at the midpoint, we're at 201, so we're in better shape than we were last year. We always tend to be a little back-end loaded in terms of when deals tend to come to fruition.

And that's no different, you know, this year. It's a little better than it has been in the past, quite frankly.

And so, you know, we continue to have really good discussions with customers, both on the renewal and new deal front. And, Hamid, I would also add to that, that when I took a look at our internal forecast, our internal forecast looks a lot like the consensus models out there as well.

Yeah, hey, Matt, great question. So, actually, if you take a look at that cash where we ended at $137 million, it's actually pretty consistent where we ended at the end of December of last year. And really, we got a couple of things. We had a great start to year. Typically, Q2 and Q3 are pretty light for us in cash generations from cash from operations, but as you can see, Q2 was very, very, very strong.

For the full year, our outlook still is the same in terms of about $150 million or give or take for the full year, which, once again, kind of going back to Q3 being relatively light. So, you know, we'd anticipate cash from operations in Q3 to be fairly modest and then have a resurgence back in Q4. And we also have a good number of commitments as we go through an operator or a business. We have a dividend program.

We pay down our debt. And last but definitely not least, we are acquisitive. So, we built up probably a little bit higher bit of cash knowing some of those things were coming in in light of having a softer or a lighter cash and operations in Q3. But with that being said, our targets are still the same when we in the year in 2026, we anticipate cash being at that $100 million number that we typically target to get to.

So, can you talk a little bit about how the negotiation was there? And do you think there's additional opportunity to license to, you know, portions of RPX's client or subscriber base or how should we think about that as a counterparty? Thanks. Yeah. Thanks, Matt. You know, yeah, we're really pleased with the RPX deal. You know, we do think it is, you know, one that we can, you know, potentially replicate going forward. It is important to note, though, that it's consistent with our licensing program, right? And so, it's term-based, right? It is something that, you know, we see, though, as really helpful in terms of when you're looking at, you know, so many customers and potential customers that we have in the e-commerce space to, you know, really reduce friction, potentially, right?

And I think RPX was a great partner for us in that regard. You know, I'm not going to get into the details of, you know, what the negotiations were, but we're really pleased with our conversations and relationship with RPX. And, you know, we do think that this, I'll just say the style of the deal can be, you know, potentially replicated going forward.

You know, I think getting, you know, 10 companies essentially under license at one time is fantastic for us, right? And then something that, you know, I think when you look at e-commerce in particular, we started really this business in e-commerce, you know, about two years ago. We got our first license agreement, you know, just, you know, at the end of 2024, right?

And now it is a significant, you know, meaningful contributor to our business and our revenue, and we see it growing pretty significantly from here. And so, yeah, it's a great deal for us. I'm very pleased with the relationship with RPX and see the deal structure as one that we could replicate moving forward.

I want to now turn the call back over to Chief Executive Officer Paul Davis for closing remarks. Thank you, operator. Once again, I would like to thank our employees for their hard work and dedication. And also our shareholders, partners, and customers for their ongoing support.

Over the next several weeks, we will be participating in the Oppenheimer Annual TMT Conference, the Rosenblatt Age of AI Conference, the Needham Annual Semi and Semi Cap Conference, and the BWS Investor Conference. We look forward to speaking with you at these and other events. Thank you.